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Portfolio Manager Insights | Weekly Investor Commentary – 4.7.21

Click here for the full commentary.

PORTFOLIO MANAGER INSIGHTS

WEEKLY INVESTOR COMMENTARY | 4.7.21
Investment Committee

Despite the jump in interest rates this year, the yields on many corporate bonds remain low. This is driven by many of the same factors that continue to push the stock market higher: the strong economic recovery and rebound in corporate profits. Last week’s blowout jobs report, for instance, showed that 916,000 jobs were added in March and the unemployment rate fell to only 6%. While this is great news in general, it makes it even more challenging for investors to generate sufficient portfolio income.

This is because there are two major factors that determine corporate bond yields. The first is the level of interest rates in the economy, usually measured by U.S. Treasury yields. These have risen significantly this year as the economy has recovered but are still near historic lows compared to the past several decades. For example, the 10-year Treasury yield, after more than tripling from its lowest point one year ago to 1.7%, is still well below the 2008 low of 2.1%.

And while higher yields are positive for investors going forward, rapidly rising rates can be problematic for existing bond holdings – a challenge known as duration risk. At the moment, the U.S. Aggregate bond index is down 3.1% for the year. This is similar to 2013 when interest rates rose swiftly during the Fed “taper tantrum” – the last time the index was negative on a calendar year basis.

The second and perhaps more important factor today is credit risk. This measures and compensates investors for the riskiness of a bond issuer above and beyond Treasuries. When interest rates are extremely low, credit risk can play a much larger role in providing sufficient income, as was the case over the last business cycle. Also in 2013, for instance, high yield bonds returned 7.4% even as Treasury bond prices fell.

It’s due to the combination of these two factors that corporate bond yields are low: although interest rates are rising, spreads continue to compress as the economy improves and the outlook for corporate profitability brightens. After all, if companies are more likely to pay their bondholders on time, the level of yield that investors need to compensate for risk is lower – even for the most speculative issues. At the moment, the spreads on high yield bonds are near their lowest levels since the mid 2000’s.

Unfortunately, there are still no easy answers for generating sufficient yield. This will continue to depend on individual goals and portfolios – one key reason that investors can benefit from proper financial advice and guidance.

Just as they have since 2008, investors need to weigh credit and duration risk relative to the rest of their portfolios. They may also need to consider alternative sources of yield, whether in other sectors of fixed income, dividend-paying stocks or taking a total return approach. The latter, for instance, can be attractive when spreads are falling and bond prices are rising. A diversified high yield index returned 7.1% in 2020 and is slightly positive year-to-date.

Ultimately, staying diversified and focusing on broader objectives, rather than just income, is most likely the best approach for investors with longer time horizons. Portfolio income remains scarce. Investors ought to stay diversified and consider alternative sources of yield.


CORPORATE BOND YIELDS REMAIN LOW EVEN AS INTEREST RATES RISE

KEY TAKEAWAYS:

1. Credit spreads continue to collapse as the economy recovers and profitability improves. Although this has boosted returns for more speculative parts of fixed income, this has also amplified the challenge of generating yield.


YIELDS ARE MUCH LOWER TODAY THAN OVER THE PAST CYCLE

KEY TAKEAWAYS:

1. The chart above compares today’s yields in traditional sources of yield to averages since 2009, which was already a low-yielding environment.
2. There are no simple answers today with traditional sources of bond yield at much lower levels.


A MORE DIVERSIFIED APPROACH MAY BE NEEDED

KEY TAKEAWAYS:

1. Investors may need to broaden their search when considering sources of yield.
2. They may also need to broaden their approach and focus on diversification and total return rather than just income.

Historical references do not assume that any prior market behavior will be duplicated. Past performance does not indicate future results. This material has been prepared by Kingsview Wealth Management, LLC. It is not, and should not, be regarded as investment advice or as a recommendation regarding any particular security or course of action. Opinions expressed herein are current opinions as of the date appearing in this material only. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate their ability to invest for the long term. Investment advisory services offered through Kingsview Wealth Management, LLC (“KWM”), an SEC Registered Investment Adviser. (2020-683)

3:00

CIO Scott Martin Interviewed on Fox Business News 3.31.21 Part 1

Kingsview CIO Scott Martin discusses what an unwinding of the tax environment might mean as the economy reopens.

Program: Cavuto Coast to Coast
Date: 3/31/2021
Station: Fox Business News
Time: 12:00PM

NEIL CAVUTO: I want to go to D.R Barton on all of this, Scott Martin on all of this, D.R, it’s obviously what we’re trying to get back in the groove. Disney talking about expanding openings at Disneyland, Disney World, Universal Studios looking to get at least a partial reopening next month. You know, Broadway talking about shows resuming this fall. You know the drill more and more getting back to normal. And that might be behind a lot of the market advance. What do you think?

DR BARTON: Now, I think that’s a really a really strong reason, Neil, we’re seeing things over not just in the big states that have opened up, but you know that we’ve talked about Florida, Texas, but other states that are also seeing some uptick in restaurant revenues, in in tourism. So those things are starting to see that uptick. That was the thing we really needed to start flipping this thing was some of the businesses that were lagging to start picking up. And I think that’s what we’re seeing. Vaccines are working. It’s coming through pretty well right now.

CAVUTO: You know, Scott Martin, I want to echo something that Larry Kudlow was saying in the prior segment about the market’s behavior in the face of what’s going to be a lot of hikes in taxes for a lot of folks, not just rich folks, that maybe the markets are saying a lot of it’s not going to happen. What do you think of that, that because if the markets truly absorb the nature of all of the spending and the tax hikes to go with it, you could make a compelling argument that shouldn’t be happening. But what do you make of that, that this is the market’s way of saying some of this gets through, not all of it gets through. Do you buy that?

SCOTT MARTIN: Feels like a dangerous game to play, Neil, because we’ve been in such a conducive tax environment thanks to Donald Trump for the last several years. And it looks like there’s a general unwinding of that likely to happen one way or another. And I think anything that unwinds is going to be somewhat detrimental. And my concern and I agree with DR, I think this opening in this hope and the vaccination effectiveness certainly ramps up the markets into, let’s just say, Q3 or Q4 of this year. But then we stand around at that point and maybe it’s sitting around a fire talking or whatever we’re doing. And it’s like now what you know, now the economy is open. Now everybody’s supposed to be back to work. Now we’re supposed to go back to our jobs in these downtown urban areas. And we’ve done such damage to society, both kind of physically and I guess psychologically, that maybe some of that stuff doesn’t come back as fast. And so that’s when I think, to your point, the tax hikes kick in the jawboning with the two thousand twenty-two midterm elections come in and all the uncertainty and the fallout for paying for all these crazy stimulus packages, some of which we didn’t need, start to really take hold on the market and knock it down again.

CAVUTO: You know DR, talked to a number of prominent Democrats and Congressman Garamendi among them, that there is a long history of Republicans saying when taxes go up, stocks go down. But they went up, they say, during the Clinton administration hike the top rate for individuals. Now, he had lowered a lot of investment related taxes, but they went up from a really super meltdown lows. And the Obama administration when he, too, later raised the top rate. So, their argument is that that dog don’t hunt that argument, that in the face of higher taxes, the market suffered. It’s not borne out. What do you think of that?

BARTON: Well, I think that it’s very simple that we need to teach those folks that are saying that that correlation does not equal causation, if we look at both of those cases to anecdotal cases, those were coming off of all that really generational market lows. We had the huge market lows coming off of the dot.com blow up and 9/11. And then we had the twenty-seven twenty-eight real estate blow up and we recovered after those. Wow, what a surprise. So, I can’t think we would say raising taxes helped those. And I believe that a tax raise here that we’re looking at, I think I’m I’m a little bit different from Scott. I think it’s going to be tough to keep them away completely. And I am with him in that when it comes, the markets aren’t going to like it very much. And we’re going to have to see how that plays out. Tax tax hikes versus all the stimulus we’ve been getting. Who wins that little punching, punching war?

CAVUTO: All right, we’re going to spend a little bit more when I get you guys back.

4:35

CIO Scott Martin Interviewed on Fox Business News 3.31.21 Part 2

Kingsview CIO Scott Martin discusses Chipolte’s Bitcoin promotion and the rise of alternative currency.

Program: Cavuto Coast to Coast
Date: 3/31/2021
Station: Fox Business News
Time: 12:00PM

NEIL CAVUTO: Now that Chipotle is looking to give away up to a hundred thousand bucks in Bitcoin, which would be what not even, you know, to two of the coins. Right at the rate it’s going, nevertheless is getting enormous attention DR Barton is back with us – Woodshaw Financial Group principal there, Scott Martin, Kingview Asset Management CIO, Fox News contributor. Well, this is a little different. I mean, Chipotle does not join the normal crowd that we’ve seen of late, including Goldman kicking around the idea and Tesla with this sort of thing. I’m not quite sure what this means, though, for Chipotle. It’s an added boost, I guess, to get people in. But what do you make of it?

SCOTT MARTIN: Neil I love it. Why am I always the last one to know on Brito’s, though, that’s the question. I mean, look, Brito’s Taco’s, I love them all. Usually when Goldman gets involved in something like this, the funs over. But ironically, in this case, I think the fun just starting, you mentioned all the other companies that are talking about Bitcoin, even the PayPal’s, the Squares, the Visas, the MasterCard. So, what it means for Chipotle is they’re getting on that bandwagon to kind of catch that rise in the, let’s say, alternative currency. And it speaks to the fact that, you know, a lot of portfolio managers like ourselves, Neil, have bought gold in the past to hedge against, say, fixed income volatility or equity. Volatility in Bitcoin is becoming a real asset class for portfolios as far as choice.

CAVUTO: You know, for the time being, DR, they’re not saying you can buy your burritos with Bitcoin that might be coming down the pike. I know Tesla is offering that with the one and a half billion that a lot of us got, you know, bought of currency that buyers could do so. But where do you see this going?

DR BARTON: Well, I think it’s just really smart marketing, Neil, kind of pure and simple, if you look up if you look up Chipotle online, you’re going to find, you know, maybe 50 million hits, 50 million hits in Google. If you look up Bitcoin, you’re going to find six hundred and eighty-eight million. It is very hot. They want their name associated with something hot where they don’t have to pay royalties to the NFL or the NBA or someone like that to have a marketing campaign. So, they have an app that’s called Bitcoin or a burrito’s or Bitcoin. You play a game on there to see if you win some of the Bitcoin fractional Bitcoin or can win a burrito. And that’s and that’s it. So, it’s a really kind of interesting marketing ploy. I don’t think it has any legs in terms of Bitcoin being accepted at Chipotle any time soon.

CAVUTO: I’d probably still go for the burrito, but Scott, looking at this, bitcoin is serious now, isn’t it? It’s gone from now being, you know, sort of shunned, sort of like an odd investment to one being embraced by a lot of Main Street players. What do you make of that?

MARTIN: Bitcoin was a t shirt a few years ago of one which I bought, in fact, that I’m happy to wear out because people what’s so funny about that is like I mean, perfect example of the T-shirt. It’s an orange T-shirt has the Bitcoin symbol on it. Three or four years ago, Neil, nobody would stop and ask about it, but now they do. And it’s probably because they see me on the shows all the time. Right. But the reality is, and they watch Fox and everything like everybody else. But the reality is people want to talk about it and feel like they’re very interested in it. So, the fact that to the point where that’s at Chipotle or be able to use it on a Visa card or something like that, that’s making it part of society and part of society to come, I think.

CAVUTO: All right, gentlemen. Food for thought. See what I did there? Food for. OK, fine. It’s the best I could do on a whim. All right.

3:39

Portfolio Manager Insights | Weekly Investor Commentary – 3.31.21

Click here for the full commentary.

PORTFOLIO MANAGER INSIGHTS

WEEKLY INVESTOR COMMENTARY | 3.31.21
Investment Committee

The S&P 500 and Dow both reached new all-time highs last Friday. Year-to-date, the stock market has continued to grind higher despite short-term worries around the pandemic, a retail trading frenzy, the Fed, inflation, tech stocks, the Suez Canal and more. Even as we write this, there are new questions around forced block trades from a failed hedge fund and the potential ripples across the market. It is in times like these that investors ought to focus on the long-term trends rather than the day-to-day headlines vying for their attention.

It may surprise some investors to learn that this is the 35th time the market has achieved a record level since the recovery began just one year ago. That may seem unbelievable except that, by definition, the stock market often spends most of its time at or near all-time highs as it rises during bull markets.

This has certainly been the case since 2013 when the S&P 500 recovered from the global financial crisis. Additionally, despite bouts of market turbulence this year, the biggest decline in the S&P 500 has only been 4%. This may feel unusually small to some investors given how large the move in interest rates and certain sectors, such as tech, have been. Fortunately, the rotation benefitting areas originally hit hard by the pandemic, including energy, materials, and industrials, has offset poor performance in high-profile sectors. Still, it is important to remember that the annual decline at some point each year tends to be closer to 15% on average, before recovering and ending on a positive note.

This is not to say that the stock market will rise indefinitely or in a straight line – it surely will not. Instead, it is that there is often a gap between what we believe may matter and what actually does. It is not the fact that the market reaches all-time highs that causes it to pull back. What matters more than what stocks have done recently are the underlying trends that affect profits, valuations, and long-run investor expectations. The ultimate impact on investor portfolios depends on whether they stick to their plans.

Thus, this early phase of the market cycle requires investors to carefully balance two factors. First, the economy continues to recover which is driving markets higher. It likely makes sense to stay invested as the new business cycle evolves and to stick to long-term asset allocations. There will no doubt be more hiccups around inflation, monetary policy, the U.S. dollar and more as this develops. However, history has shown that stocks tend to rise over long periods of time as the world improves.

Second, even as they stick to their financial plans, investors ought to remain disciplined and avoid complacency, especially while valuation levels are elevated. At the moment, the broad market trades at a price multiple of 22 times next-twelve-month earnings – near its historic peak of 24.5x during the dot-com bubble. Of course, this is due to the collapse in earnings during the pandemic lockdowns. If earnings can fully recover and achieve new levels by the end of 2021, as many expect, this ratio could slowly fall to more attractive levels.

THE STOCK MARKET CONTINUES TO REACH NEW HIGHS DESPITE SHORT-TERM CONCERNS

KEY TAKEAWAYS:

1. The stock market reached new all-time highs recently the 35th time they have done so over the past year. This should not surprise experienced investors since the underlying economic trends are favorable.

Thus, this early phase of the market cycle requires investors to carefully balance two factors. First, the economy continues to recover which is driving markets higher. It likely makes sense to stay invested as the new business cycle evolves and to stick to long-term asset allocations. There will no doubt be more hiccups around inflation, monetary policy, the U.S. dollar and more as this develops. However, history has shown that stocks tend to rise over long periods of time as the world improves.

Second, even as they stick to their financial plans, investors ought to remain disciplined and avoid complacency, especially while valuation levels are elevated. At the moment, the broad market trades at a price multiple of 22 times next-twelve-month earnings – near its historic peak of 24.5x during the dot-com bubble. Of course, this is due to the collapse in earnings during the pandemic lockdowns. If earnings can fully recover and achieve new levels by the end of 2021, as many expect, this ratio could slowly fall to more attractive levels.

The same is true when assessing the valuations across sectors and styles. Tech-related industries and growth stocks are still relatively expensive after their bull runs last year. While some of these investments can still make sense, it may be necessary to re-evaluate these holdings and consider portfolio adjustments. This is an area in which having a trusted advisor is crucial, since the goal is often to make tilts to well-thought-out asset allocations, not to abandon them altogether.

THE LARGEST PULL BACK THIS YEAR HAS ONLY BEEN 4%

KEY TAKEAWAYS:

1. Although many of the episodes that have grabbed investor attention have felt volatile, the largest intra-year decline has only been about 4% this year.

2. Markets have swung in both directions, however, the S&P 500 is still positive for the year.

THE MARKET AND CERTAIN SECTORS ARE NOT CHEAP

KEY TAKEAWAYS:

1. Despite positive markets, investors ought to remain disciplined. Valuations across the market are still elevated and are close to historic peaks.

2. These could moderate over time as the economy and corporate profits improve. Now is the best time to evaluate asset allocations as the cycle evolves.

Thus, investors face a balancing act between taking advantage of the business cycle and staying disciplined. While this is a difficult
balance to strike amid constant distractions, history has shown that those who are able to do so have a better chance at achieving their
financial goals.

Investors should stick to their asset allocations and consider tilts in order to help them stay invested. Although there will no doubt be
more market-moving headlines the rest of the year, the underlying long-term trends are positive.

Historical references do not assume that any prior market behavior will be duplicated. Past performance does not indicate future results. This material has been prepared by Kingsview Wealth Management, LLC. It is not, and should not, be regarded as investment advice or as a recommendation regarding any particular security or course of action. Opinions expressed herein are current opinions as of the date appearing in this material only. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate their ability to invest for the long term. Investment advisory services offered through Kingsview Wealth Management, LLC (“KWM”), an SEC Registered Investment Adviser. (2021-144)

3:00

CIO Scott Martin Interviewed on Fox Business News 3.24.21 Part 1

Kingsview CIO Scott Martin discusses increased taxes and the Treasury Department’s record revenues.

Program: Cavuto Coast to Coast
Date: 3/24/2021
Station: Fox Business News
Time: 12:00PM

NEIL CAVUTO: All right, what is fair share for those of a certain age, I’ll probably be just leaving you out on this one, but it does remind me of a Luke Costello skit with Bud Abbott where he’s trying to explain something or understand something. So, for that audience, I’m just saying, you said FairShare was thirty-nine-point six percent and then we got it. Then you said it had to go up another few percentage points to forty two percent to pay a Medicare surtax. So, forty two percent was a fair share. Then it had to go up another three percent to pay for the Affordable Care Act. That brought it up to forty five percent. Then a number of states like New Jersey, they said, I’m going in and out of this, but they all of a sudden, we’re adding it to bring it over 50 percent and it’s still not a fair share. So, what is it? What is it? Let’s go back to two people who cannot remember Abbott and Costello, but they’re smart, nevertheless. Danielle DiMartino, both Scott Martin. Scott, what is i. I really don’t know. I mean, we can kid aside and do the you know, the whole Lou Costello thing about what is fair share, but it keeps changing. I don’t know if it’s going to go over 40 percent. And with all these other things over forty five percent where it stops, where it goes, what do you think?

SCOTT MARTIN: Yeah, maybe it has to do with the fact that the Treasury Department is receiving record revenues in taxes from the American people, so that may be something. Look, as far as the rich folks go, they don’t pay their fair share. Neil, they actually pay more than their fair share. And that’s really what worries me about how we treat the folks that are productive in society and create jobs and do the spending. I’m sitting here thinking about how to answer this question. I’m looking at this one point nine trillion exorbitant stimulus package we just passed a couple of weeks ago, the American Recovery Act or something like that plan. You know, that’s the amount of money that the Treasury Department gets in either income taxes just about to the dime, either in income taxes or payroll taxes. So why don’t we take that spending money? And why don’t we give people like a tax holiday and one of those two buckets? Because that’s where money is going to go. Best spent or best treated, not by taking it away from people to pay for some stimulus package that we didn’t need. That doesn’t go to good places. And I may be way off. I’m glad Daniels here because I might be missing something, but that seems to make a lot of sense to me.

CAVUTO: Well, I do know this much, Daniel. They’re very creative coming up with ways to get more money into Washington, not not to go to, you know, slowing down the amount of money leaving Washington. And that’s what worries me. I mean, we can talk about the rich and many of them can afford these higher taxes and all. But what is a fair share for them to make it right to stop saying that they’re not doing enough, that they’re hosing the system or whatever else is being argued on the part of those who say that they’re not doing enough when in fact, they’re paying the lion’s share of the taxes.

DANIELLE DIMARTINO BOOTH: You know, it’s hard to say, Neal, I don’t know that they think that there is necessarily a limit, but I can say this much. You know, the CPAs of across America are licking their chops right now because they’re like, oh, goody, they’re going to make the thousands and thousands and thousands of pages of US tax code even more complicated than they are by putting little things here and there, as you were saying, two percent, three percent. Look, I’ve got this great idea that would actually make it to where the IRS didn’t have to have as many people on their payroll so that we didn’t have to replenish it. Why don’t we simplify the tax code and make things a lot easier than they were then rather than just try and nickel, dime, nickel, dime, nickel, dime. If you are wealthy and you make the tax code that much more complicated, you’re just going to pay your CPA a little bit more money so that he can get you out of it. And if you really, really, really try and soak the rich, that’d be a that’d be great for other countries. For other countries. Neil.

CAVUTO: Yeah, everybody’s got a skin in the game, obviously, the rich should be paying more of that skin that I understand that’s the nature of our progressive tax code. But this is all out of whack here. I just have no idea what this moving target means and where it goes. But I have a good sense that neither of you are paying your fair share. So, you’re gonna have to pony up. Guys, I want to thank you both very, very much. Is the IRS, which, of course, is watching. We have a lot more coming up.

4:32

CIO Scott Martin Interviewed on Fox Business News 3.24.21 Part 2

Kingsview CIO Scott Martin discusses digitized currency, its possible trade behavior, and what government involvement could mean.

Program: Cavuto Coast to Coast
Date: 3/24/2021
Station: Fox Business News
Time: 12:00PM

NEIL CAVUTO: With Danielle DiMartino Booth about the Intelligence LLC CEO, Chief Strategist, former Dallas Fed advisor as well, the Federal Reserve got kind of leery of this, too, I should point out. Scott Martin Kingsview Wealth Management, Fox News contributor. So, Danielle, we heard from Jerome Powell. He might take up this issue yet again today. We’re studying it. We’re looking at it normally. When you hear established US authorities talking about Bitcoin in that frame of mind, it’s their way of saying they can’t ignore it. Where are you on this?

DANIEELLE DIMARTINO BOOTH: I don’t think that there is a way to ignore the advent of digital currency. Know, we’ve heard from China that it’s very possible that the Beijing Olympics next year, that the only form of payment that’s going to be accepted will be a digitized yuan. So, the world is definitely moving in this direction. The largest economies are going there as well. There is no way to ignore Bitcoin. There is mass adoption going on right now, as we’ve seen today with Tesla. But as you mentioned, many financial institutions are truly legitimizing this form of currency, which is really a refutation of the trillions and trillions and trillions of dollars of debt being taken on, not just here in the United States, but globally. We’re pushing three hundred trillion dollars of debt. And this is this is kind of something that says, you know what, I reject where this is going. And this is a reflection of my rejection of that. That is, I think, the way Bitcoin is viewed throughout the world.

CAVUTO: You know, Scott, they say that investors in this class of assets are largely young or younger because they grasp the technology to grasp the potential. They just think it’s cool and they’ve seen people become instant millionaires investing at this thing when it was a few hundred bucks a coin and now north of fifty-six thousand bucks are gone and they want in on that party. I’m just wondering how you describe it as an investment that might now be going into the next level. This is just me wondering about this, where established players are more inclined to at least have it in its arsenal. And again, I’m talking beyond Tesla and Microsoft, Home Depot. We were showing that list. We’re going to rifle through some of the players again. What do you make of that as a young man yourself?

SCOTT MARTIN: Well, I was going to say I hate to ruin the premise, but I’m in it and I’m almost 80 years old, so that kind of ruins that whole deal, doesn’t it? But you know, what you’re right, Neal, about is that it’s just a lot of good face cream over the years. The result of that, Neal, though, is funny because as investment advisers, we have clients at all age ranges. And you’re right, a lot of it is the millennials, the younger generation, but a lot of the older folks, quote unquote, myself included, I am over 40. Let’s just put that out there. Do you want to get involved in that? And the institutions you mentioned? Why? Because to Daniel’s point, they see the opportunity here, whether it is talking against all the debt that we’re raising, whether it is talking down the dollar interest rate policy from the Fed, the fact that it is kind of this new neat digitized currency, the block chain process behind it is a little bit safer than what we deal with our own currency so far. I mean, there’s a lot of reasons to like it. I think the one thing that scares me a little bit, though, is it’s still in its infancy. And so how it trades and how it behaves over the next three to six months, five, you as you have all these companies pouring in like Tesla, that that put one point five billion of their balance sheet cash into Bitcoin. That still is risky to me because we don’t know what’s going to come of the government involvement or the Fed view of it. And when the government does get involved in this, I was hoping Danielle was going to say it, but I’m going to say it at risk here. That takes the fun out of it. Doesn’t I mean, that makes some of the upside, I think, kind of go away here. So, to me, as long as they stay out of it, that’s why I think it’s still an own.

CAVUTO: Well, they’re not going to stay out of it, I think they see this as a threat, or they certainly see it as a threat to the dollar and they’re not keen on that. They’re not going to say it as such, but they certainly intimated that. So, Danielle, the question then becomes what to make of this phenomenon here? Because with so many established players, at least including it in their list of assets, it is a sign that it’s getting mainstreamed a little bit, a little bit more. And I also think there’s another phenomenon going here where buyers can buy fractionally at fifty-six thousand. Sounds intimidating to you. What if you can buy in small doses and small takes and still have the same percentage run? I think since that started in a strong way, let’s say in the last six months particularly, that has contributed a lot to this rush of investors. Not they might all be getting hosed here. But your thoughts on that and how the authorities respond to that, or should they?

BOOTH: So, you know, there is indeed risk and you know what, you can put Bitcoin on a credit card. So, I think that there should be certain governors, certain limitations, certain guardrails out there, because it is still something that that trades all throughout the weekend. It can swing ten thousand dollars on any given day in value. So, you know, it is something that requires investor education. It’s the same as what we saw at the advent of the equity, a stock and what we saw with call options and put options that don’t require investors to put up the same amount of capital, but yet they do involve a great deal of risk. So, I applaud the adoption. I understand it, but I do see where governments do have a place in trying to look into it and make sure that that’s not someplace that they necessarily need to be. But to Scott’s point, that will take all of the fun out of it. But at least at least, Neil, you also have great hair. So that’s the upside.

CAVUTO: Well, there is some hope there. But, you know, one last thing before we move on, and I’m going to get you guys back to discuss watching the developments. But, Scott, this notion that a bitcoin can advance as the markets advancing it used to be the other way around Bitcoin would have a strong day when, let’s say the markets were not all the time, but a good deal of the time. Now they can move in tandem as if the markets see this not as a threat and vice versa for bitcoin. The markets and what they’re doing in a more traditional sense are not a threat either. Do you see that as a developed we should watch? Is it natural or they’re going to go their separate ways? They both can’t succeed together. What do you think?

MARTIN: I think it’s totally becoming a legit asset class and it hurts my old friend Gold to that degree, too, because as we see the government come out with these crazy spending programs, more infrastructure, more stimulus for everybody as they’ve killed the economy and tried to fix maybe their past mistakes, I think that’s really what Bitcoin is responding to. And so, you get a little inflation, maybe you get this economic reopening, you get more people using Bitcoin in different places. We already talked about Tesla. Now, I like how you put it, Neil Tesla. Maybe Bitcoin needs Tesla more than Tesla needs it, but maybe that’s just a symbiotic relationship. So, the reality is, is that as more adoption comes with the economic recovery, it’s good for the coin.

CAVUTO: Can you think about it? How you buy something with something that swings so wildly that as widely as it did before, is anyone’s guess, I guess. Danielle, that’s the thing that the regulators are going to look at, because you’re buying something that has value changes dramatically. Again, not with the 15 to 20 percent swings we used to see, you know, per day, but it does when. So, you’re buying, let’s say, a Tesla car. The price is one thing in the morning with this thing and quite another later in the afternoon. Right.

BOOTH: And that is at the very core of Bitcoin, again, something that Scott rightly says is in its infancy, in order for something to truly be a currency, it has to be a stable store of value, not just a medium of exchange. And on that count, it really does have yet to prove itself. So, it will take time. We will have to see it does stop moving in tandem with technology stocks, for example. I mean, that’s not that’s not necessarily the correlation that you want to see when go, go. Stocks are flying. So as bitcoin. And that is not something that you say to yourself, well, that’s you know, that that that that gives me a sense of peace. And again, something has to be a store of value. That’s why the US dollar retains its reserve currency. But it’s also why China’s trying to get into this realm, because China and Bitcoin both have their eye on the dollar.

CAVUTO: Yeah, and more like a target. So, we’ll watch it very closely. Guys, thank you very much. Don’t go away. We’re going to bring it back right after a report on what’s going on. Watch.

8:55

Portfolio Manager Insights | Weekly Investor Commentary – 3.24.21

Click here for the full commentary.

PORTFOLIO MANAGER INSIGHTS

WEEKLY INVESTOR COMMENTARY | 3.24.21
Investment Committee

As the economic recovery gathers steam and vaccine distribution accelerates, many investors are concerned about how the Fed may react.

If inflation and long-term interest rates continue to rise, will the Fed keep policy rates at zero and allow the economy to overheat? Or will they be forced to raise rates and end the party sooner than expected? What does history tell us about Fed policy and how could it affect investors?

In a way, history is repeating itself as worries about the Fed take center stage, just as they so often do during recoveries. The irony is that, during the mid-2010s after the global financial crisis, investors were worried about a Fed “liftoff” – i.e., the start of federal funds rate hikes. Today, investors are more concerned that the economy may overheat and spark runaway inflation if the Fed does not raise rates. All these concerns are taking shape even as the COVID-19 crisis continues, a factor that is well outside of the Fed’s control.

The role of the Fed has traditionally been mundane: to manage interest rates to keep the economy balanced. Their dual mandate to keep inflation low and employment high requires careful monitoring of economic conditions and adjustment of interest rates. Low interest rates can spur economic growth, which is why they are used in times of crisis, while high rates tend to slow the economy. This is a careful balancing act that is as much art as science.

At the moment, Chair Powell and the Federal Reserve Open Market Committee have made it clear that they do not intend to increase the federal funds rate until at least 2023 and possibly 2024. This is partly because many sectors of the economy may take longer to recover from the pandemic. For instance, the Fed and other policymakers consider a wide array of job market data beyond the headline unemployment numbers. Many data, including individuals that are newly discouraged from seeking work and those that may have been misclassified by official surveys, suggest that “true” unemployment is still much higher than average.

An equally important consideration for the Fed is that inflation has been much lower than expected since at least 2008. Whether this is due to trends such as technological deflation and globalization is the subject of academic debate. Regardless of the causes, the Fed’s position is that it will tolerate overheating inflation since it has run so cool for so long. It will likely do so especially if this allows unemployment to fall to pre-crisis levels.

What does this mean for investors? First, inflation has been declining for decades. And while there are reflationary pressures as the economy bounces back from the pandemic, this is a far cry from the double-digit inflation rates experienced during the 1970s. Investors should consider what higher inflation means to their asset allocations and personal income statements without over-reacting and expecting a stagflationary environment.

THE FED HAS KEPT POLICY RATES LOW THROUGHOUT THE PANDEMIC

KEY TAKEAWAYS:

1. This chart shows that the federal funds rate is adjusted based on economic conditions. The Fed kept policy rates low from 2008 to 2015 in response to the global financial crisis. The Fed also took emergency action last year to stimulate the economy at the start of the pandemic.

2. The federal funds rate is still at the zero lower bound today, and the Fed is still buying assets and growing its balance sheet, despite the ongoing economic recovery.

Second, investors often fear the onset of Fed rate hikes even though history suggests that they are a natural and inevitable part of the business cycle. A few tumultuous periods such as the taper tantrum aside, the normalization of the Fed’s balance sheet and rate hikes from 2013 to 2019 occurred alongside a strong bull market.

FED OFFICIALS DON’T EXPECT RATE HIKES UNTIL 2023 OR 2024

KEY TAKEAWAYS:

1. Despite the recovery, the FOMC does not expect rate hikes to begin until at least 2023. This chart shows the Fed’s “dot plot” – i.e., each individual member’s expectation of rates at the end of each calendar year.

2. While more officials expect rates to pick up sooner, the first hike is still years away based on current estimates.

FED RATE HIKES ARE A NATURAL PART OF BULL MARKETS

KEY TAKEAWAYS:

1. If history tells us one thing about Fed rate hikes, it’s that they are nothing to fear.

2. Rate hikes have occurred alongside rising stock markets across history, whether or not investors have agreed with monetary policy decisions.

Of course, market expectations and projections made by Fed governors are based on information available today – an improvement or deterioration in any of the economic data could lead to a different policy path. Additionally, none of this addresses concerns that the Fed has provided too much stimulus over the past two cycles – and that there could be long-term consequences.

What these consequences will entail and when they will occur are the subject of speculation. What is certain is that focusing too much on Fed decisions distracts investors from what truly matters: sticking to their long-term asset allocations and achieving financial goals. There are many uncertainties surrounding the economy and the Fed. Investors should stay focused on their long-run asset allocations, consider the effects of rising inflation and interest rates, and resist over-reacting to Fed actions.

Historical references do not assume that any prior market behavior will be duplicated. Past performance does not indicate future results. This material has been prepared by Kingsview Wealth Management, LLC. It is not, and should not, be regarded as investment advice or as a recommendation regarding any particular security or course of action. Opinions expressed herein are current opinions as of the date appearing in this material only. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate their ability to invest for the long term. Investment advisory services offered through Kingsview Wealth Management, LLC (“KWM”), an SEC Registered Investment Adviser. (2021-141)

3:00

CIO Scott Martin Interviewed on Fox Business News 3.22.21

Kingsview CIO Scott Martin discusses the twenty-five-billion-dollar railway merger that will link Canada, the U.S. and Mexico, and its economic effects.

Program: Mornings with Maria
Date: 3/22/2021
Station: Fox Business News
Time: 6:00AM

MARIA BARTIROMO: Time for the word on Wall Street. Top investors watching your money this week. Joining me right now is Kingsview Wealth Management Chief Investment Officer and Fox News contributor Scott Martin, Michael Lee Strategy founder Michael Lee and Bulltick Capital Markets Chief Strategist Kathryn Rooney Vera. Great to see everybody this morning. Thank you so much for being here, Kathryn, kicking it off with you. Markets are mixed this morning, but the Nasdaq on track for gains. The tech sector certainly has been very volatile lately, with Treasury yields backing up bond rates amid ongoing fears of inflation. This morning, we’ve got the 10-year yield pulling back from the one-point seven percent number we saw last week. What’s your take on where we are with tech stocks, which seem to be much more sensitive to this move in interest rates than any other area?

KATHRYN ROONEY VERA: Absolutely, I think that tech, especially the Nasdaq, when we get a 10 percent pullback, Maria, as an opportunity to accumulate positions in the sector that is fundamentally strong and going to be going forward in terms of interest rates and inflation. Inflation is an inevitability. It’s part of the equation of exchange and economics that we all learned about. If we study economics 101 a nominal GDP equals money supply 10 times the velocity of demand over the past year, 12 months, 40 percent of end one which is base money, just all the money circulating in the system has been created, 40 percent has been created. And velocity of money, which is simply the number of transactions in the system, has collapsed. So, one of the two has to change. More likely than not, Maria, given the amount of deficit spending, higher, higher employment and improvement in the economy and higher leverage people taking on more debt and spending, we’re going to get more velocity of money, which means inflation is going to increase. So, what I’m recommending to clients is, yes, they want to stay long, the benchmark indices, because the Fed and the federal government and the Federal Reserve are going to continue to juice markets, but protect yourself, protect yourself with Treasury inflation protected instruments, protect yourself with gold, protect yourself with sectors and with companies that will benefit from a certain inflation, which I see over the 18 to 24 months rise. It may be sooner, Maria.

BARTIROMO: Yeah, well, we’ll certainly be seeing moves in a number of commodities prices, so you could expect that we are going to see some threat here, although the Fed doesn’t seem worried at all. Look, we’ve got a couple of things happening this morning, Michael. You’ve got a twenty-five-billion-dollar rail deal. And then global markets are also watching Turkey. The Turkish lira plunged 10 percent after President Erdogan replaced the country’s top central banker with a vocal critic of higher interest rates. Your reaction to the Turkish story and how that may impact markets today?

MICHAEL LEE: Well, it’ll be interesting to see the effect on other emerging markets, but this is big news for Turkey. This is the third central banker in the last five years. Erdogan looking, always looking to consolidate power and running the government as he sees fit. And so, society general called this the point of no return. Turkey’s running at about a 15 percent inflation rate right now. And after printing increasing loan growth by 50 percent last year to combat the coronavirus, their foreign reserves are dwindling. Their GDP’s about seven hundred and sixty billion dollars in us, and they owe about four hundred and sixty billion dollars’ worth of US denominated debt. The problem when you owe debt in another currency is you can’t print your way out of it the way that the US is doing right now. So, it seems the walls are starting to come in on the Turkish economy. Therefore, the way out of this for a company or for a country like Turkey is foreign direct investment. Foreign direct investment peaked in 2010 and now we’re at levels below that a decade later. And that’s what happens when you have leadership that’s essentially a puppet dictator looking to remake the Ottoman Empire. So, I’m definitely in sojourns camp here thinking that this is the point of no return. It’ll be interesting to see these knock-on effects of the money printing and a lot of these other emerging markets, a lot of countries that simply do not have the balance sheet strength of the United States to be able to stimulate their way out of this. Hopefully the United States economy can lead the rest of the world out of this recession, as it has done many times before. But that remains to be seen.

BARTIROMO: So, so you don’t so you don’t see the Turkey story, though, having an impact on US markets?

LEE: Well, look, there definitely is a knock-on effect on all the other emerging markets. So, you know, that’s going to create some additional volatility. But I don’t think it’s going to affect the U.S. GDP growth one iota.

BARTIROMO: Well, you also have some pretty good deals to talk about this morning, Scott, railroad giant Canadian Pacific and Kansas City Southern announced a twenty-five-billion-dollar merger. This is going to create the first railroad freight line that links Canada, the US and Mexico. Scott, the implications here, how do you how do you invest around this one?

SCOTT MARTIN: Love it. Merger Monday seems to be back, Maria, and full disclosure, I’m a huge trains fans played with model trains as a kid and actually chased them as an adult. And, yes, that is a real thing. So, this is a great deal for us. We own railroads. That’s a really, really real thing. So, here’s the thing, though. If you look at you mentioned USCA, hey, we talked about it a couple of years ago, passage of that, the revamp of NAFTA starting to show its fruition with respect to what it’s doing for businesses and generation of new, say, rail lines in this case. So, if you look going forward, though, look at how the merger Monday kind of thing could start going. I mean, look at hospitality, look at some other areas, hotels, restaurants, things like that that are depressed in value. You could start to see a lot more companies kind of getting together and putting together forces to take advantage of the current economic environment.

BARTIROMO: Yeah, you make a good point, because there’s also Crown, the Blackstone Group making a bid for the gaming business. And now this deal in railroads. Anything to say about policy with regard to its impact on the rail business, Scott? Because we know that the Biden administration cancelled the XL pipeline. Does that ultimately become a positive for the railroad sector?

MARTIN: It does in the case of, say, this merger, because, as you mentioned, it’s Canada, US and Mexico, the first railroad line that will have all three countries in concert there. But also, Maria, to look at this Green new effect that say the administration is trying to have on the economy, trying to clean up and green up some of our highways, take some of those same fuel, non-fuel-efficient trucks off the highways. The railroads should benefit from that transportation as far as freight.

BARTIROMO: All right, great to see everybody this morning, Scott Martin, Michael Lee, Kathryn Rooney, Vera, always a pleasure. Have a great Monday. We’ll see you soon. Thanks so much. Much more ahead this morning.

6:55

Nolte Notes 3.22.21

March 22, 2021

The days are longer than the nights and the weather is beginning to warm up. Baseball starts in 10 days! Summer is just around the corner. The economic “issue” is that inflation is beginning to heat up as well. Getting lumber or copper for homebuilding or gas for your car is costing a whole lot more than a year ago. As a result, interest rates are rising and pushing the Fed to recognize that an ill wind that blows does nobody good. Inflation, in the words of the Fed, may be transitory, but for how long? Expectations are for an economy to be blowing hot during the summer as economies open around the world. With all the stimulus and people going back to work with extra money in their wallets, inflation may be around for something more than a transitory period. To be fair, the Fed has pulled the punch bowl from the party well ahead of things getting out of hand, but this time wants to wait until they start seeing the party really rolling before raising rates.

Last week’s economic data was less than stellar, but the key report will not be showing up until April’s jobs report. The weekly jobless data is stuck in low gear, without much change since Halloween. However, the continuing claims are about double that of early 2019 and about two-thirds of the peak in 2008/09. Other data points are indicating the economy is healing, albeit very slowly. The coming jobs report will be informative as to the type of jobs coming back. In early March, the jobs report showed a large pick-up in hospitality jobs, restaurant, hotel, and bars. The trend is expected to continue as various states are loosening the restrictions of the past six months or so. Commodity prices are beginning to roll over a bit, energy prices have dropped from their recent highs and agriculture prices are down for March. So, while inflation indices could continue to rise in the months ahead, some prices are beginning to decline. As vaccinations increase and economies open, the main debate is how much pent-up demand is out there. Many are hungry to get out, others remain cautious. Trying to guess human behavior after this year is a fool’s errand. We will watch how things unfold rather than trying to guess.

The direction of interest rates has been the focus of investors over the past month as rates on the 10-year bond is now at the highest level in over a year. However, looking back at the 10-year yield, rates have been in a range between 1.50% and 3% since mid-2011. Before collapsing to under 0.60% last summer, the yield on 10-year bonds was near 2%. The concern today is that inflation is going to spike, and the Fed will have to step in to raise rates. The Fed has stepped in early, anticipating the inflation that never came. Today, they want to see inflation before beginning to tighten rates. They should be on the sidelines until sometime in 2022.

The battle between growth and value continues to rage during March and has been dependent upon the direction of interest rates. When rates rise, growth stocks falter. When rates ease, growth races higher. Growth stocks are all about future expectations for earnings that get discounted back to a price today. As rates increase, that discount rate also increases, pushing today’s value lower. More cyclical stocks that are tied to economic growth benefit from a better economy. They tend to be very leveraged to economic growth, doing very well as the economy recovers and booms, and collapsing when the economy hits a recession. We have been concerned that growth stocks have “discounted” every possible bit of good news in their price, so any change could mean much lower prices if those expectations are not met. While not necessarily as egregiously priced as the tech bubble in 2000, many growth stocks are still priced for perfection and could fall dramatically if those expectations are not met. Meanwhile, little is expected of the consumer related stocks in the face of the pandemic. As the economy opens, many will do very well as consumers return and spend money. That rotation from growth to value is likely to continue in the weeks/months ahead as people start to feel better about mingling with others.

Interest rates are likely to continue to rise as economic growth should also rise dramatically over the summer months. While that growth may be temporary, investors will still fret about potentially higher inflation and a Fed that may begin to tighten monetary policy and push interest rates higher still.

The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.

2:30

CIO Scott Martin Interviewed on Fox Business News 3.19.21

Kingsview CIO Scott Martin discusses increased taxes and the Treasury Department’s record revenues.

Program: Cavuto Coast to Coast
Date: 3/19/2021
Station: Fox Business News
Time: 12:00PM

NEIL CAVUTO: All right, what is fair share for those of a certain age, I’ll probably be just leaving you out on this one, but it does remind me of a Luke Costello skit with Bud Abbott where he’s trying to explain something or understand something. So, for that audience, I’m just saying, you said FairShare was thirty-nine-point six percent and then we got it. Then you said it had to go up another few percentage points to forty two percent to pay a Medicare surtax. So, forty two percent was a fair share. Then it had to go up another three percent to pay for the Affordable Care Act. That brought it up to forty five percent. Then a number of states like New Jersey, they said, I’m going in and out of this, but they all of a sudden, we’re adding it to bring it over 50 percent and it’s still not a fair share. So, what is it? What is it? Let’s go back to two people who cannot remember Abbott and Costello, but they’re smart, nevertheless. Danielle DiMartino, both Scott Martin. Scott, what is i. I really don’t know. I mean, we can kid aside and do the you know, the whole Lou Costello thing about what is fair share, but it keeps changing. I don’t know if it’s going to go over 40 percent. And with all these other things over forty five percent where it stops, where it goes, what do you think?

SCOTT MARTIN: Yeah, maybe it has to do with the fact that the Treasury Department is receiving record revenues in taxes from the American people, so that may be something. Look, as far as the rich folks go, they don’t pay their fair share. Neil, they actually pay more than their fair share. And that’s really what worries me about how we treat the folks that are productive in society and create jobs and do the spending. I’m sitting here thinking about how to answer this question. I’m looking at this one point nine trillion exorbitant stimulus package we just passed a couple of weeks ago, the American Recovery Act or something like that plan. You know, that’s the amount of money that the Treasury Department gets in either income taxes just about to the dime, either in income taxes or payroll taxes. So why don’t we take that spending money? And why don’t we give people like a tax holiday and one of those two buckets? Because that’s where money is going to go. Best spent or best treated, not by taking it away from people to pay for some stimulus package that we didn’t need. That doesn’t go to good places. And I may be way off. I’m glad Daniels here because I might be missing something, but that seems to make a lot of sense to me.

CAVUTO: Well, I do know this much, Daniel. They’re very creative coming up with ways to get more money into Washington, not not to go to, you know, slowing down the amount of money leaving Washington. And that’s what worries me. I mean, we can talk about the rich and many of them can afford these higher taxes and all. But what is a fair share for them to make it right to stop saying that they’re not doing enough, that they’re hosing the system or whatever else is being argued on the part of those who say that they’re not doing enough when in fact, they’re paying the lion’s share of the taxes.

DANIELLE DIMARTINO BOOTH: You know, it’s hard to say, Neal, I don’t know that they think that there is necessarily a limit, but I can say this much. You know, the CPAs of across America are licking their chops right now because they’re like, oh, goody, they’re going to make the thousands and thousands and thousands of pages of US tax code even more complicated than they are by putting little things here and there, as you were saying, two percent, three percent. Look, I’ve got this great idea that would actually make it to where the IRS didn’t have to have as many people on their payroll so that we didn’t have to replenish it. Why don’t we simplify the tax code and make things a lot easier than they were then rather than just try and nickel, dime, nickel, dime, nickel, dime. If you are wealthy and you make the tax code that much more complicated, you’re just going to pay your CPA a little bit more money so that he can get you out of it. And if you really, really, really try and soak the rich, that’d be a that’d be great for other countries. For other countries. Neil.

CAVUTO: Yeah, everybody’s got a skin in the game, obviously, the rich should be paying more of that skin that I understand that’s the nature of our progressive tax code. But this is all out of whack here. I just have no idea what this moving target means and where it goes. But I have a good sense that neither of you are paying your fair share. So, you’re gonna have to pony up. Guys, I want to thank you both very, very much. Is the IRS, which, of course, is watching. We have a lot more coming up.

4:55